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Solutions for Advanced Financial Accounting Exam 1 (1st edition by Nathalie Johnstone)
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Solutions for Advanced Financial Accounting Exam 1 (1st edition by Nathalie Johnstone)
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Solutions for Advanced FinancialAccounting Exam 1 (1st edition by
Nathalie Johnstone)
two types of expansion - ANSinternal and external
internal ways to expand - ANSa spin-off and a split-off
when an acquirer obtains control of one or more businesses - ANSbusiness combination
4 external ways to expand - ANS1. merger
2. controlling ownership
3. non-controlling ownership
4. other beneficial interest
a business combination in which the acquired business' assets and liabilities are combined with
those of the acquiring company - ANSmerger
a business combination in which the acquired company remains as a separate legal entity with
a majority of its common stock owned by the purchasing company leading to a
parent-subsidiary relationship - ANScontrolling ownership
the purchase of a less-than-majority interest in another corporation does not usually result in a
business combination or a controlling situation - ANSnon-controlling ownership
one company may have a beneficial interest in another entity even without a direct ownership
interest - ANSother beneficial interest
a common way to obtain corporate control is - ANSby purchasing more than 50% of an entity's
common stock
acquisition method of accounting - ANSacquired company is valued based on the fair value of
consideration given in the combination and the fair value of any noncontrolling interest not
acquired by the acquirer
in acquisition accounting, - ANSa change of basis in accounting occurs
there are three primary legal forms of business combinations - ANS1. statutory merger
2. statutory consolidation
, 3. stock acquisition
the acquired company's assets and liabilities are transferred to the acquiring company, and the
acquired company is dissolved (one legal entity survives) - ANSstatutory merger
both combining companies are dissolved and the assets and liabilities of both companies are
transferred to a newly created corporation (one new legal entity survives) - ANSstatutory
consolidation
one company acquires the voting shares of another company and the two companies continue
to operate as separate, but related, legal entities - ANSstock acquisition
when a parent company creates a subsidiary through internal expansion, the parent's journal
entry to transfer assets to the newly created entity will include a debit to - ANSinvestment in
subsidiary
buyer recognizes all assets acquired and liabilities assumed in a business combination and
measures them at their acquisition-date - ANSfair values
2 Steps in Acquisition Accounting - ANS1. create opening balance sheet
2. determine goodwill or bargain price
steps in creating an opening balance sheet - ANS1. record assets and liabilities assumed at FV
2. all costs of bringing about a combination are charged to an acquisition expense as incurred
3. do not expense direct costs of issuing stock (charged to APIC)
goodwill = - ANStotal FMV given - FMV of identifiable net assets
excess (consideration given exceeds FV of net assets) - ANSgoodwill
deficit (consideration given is less than FV of net assets) - ANSbargain purchase (or gain on
purchase)
less than 20% ownership and no significant influence - ANSFV method
under the FV method, dividends are treated as - ANSincome
greater than 20% ownership and significant influence - ANSequity method
under the equity method, dividends - ANSreduce investment in sub
if Company A purchases 45% of the outstanding common stock of Company B, the investment
in Company B should be accounted for - ANSas an equity method investment
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